The Impact and Reach of U.S. Natural Gas
Posted January 11, 2016
A couple of data points from the U.S. Energy Information Administration (EIA) that help illustrate the impact of the natural gas portion of the American energy revolution.
First, EIA reports that wholesale electricity prices at major trading hubs, on a monthly average for on-peak hours, were down 27 percent to 37 percent across the U.S. in 2015 compared to 2014. The reason for the decrease, EIA says, is lower natural gas prices. EIA’s chart:
Another EIA chart, showing electrical generation by power source:
Low natural gas prices in 2015 made natural gas-fired generation more competitive with coal-fired generation than it had been in the past. During April, July, August, September, and October, more electricity was generated from natural gas-fired generators than from coal-fired generators (data for November and December are not yet available). … As the average capacity factor for coal-fired generators declined modestly in 2015, the capacity factors for natural gas-fired generators increased, especially for combined-cycle plants. On average, natural gas combined-cycle units across the country operated at capacity factor rates consistently 5%-11% higher each month than either of the past two years.
Now, let’s zero in on the increasing affordability of natural gas in electricity generation. Recently, EIA reported that 2015 natural gas spot prices at the national benchmark Henry Hub averaged $2.61 per million Btu (MMBtu), the lowest annual average since 1999. Interestingly, declining prices did not result in lower production, EIA says:
Despite declining prices, total natural gas production, measured in terms of dry gas volume, averaged an estimated 74.9 billion cubic feet per day (Bcf/d) in 2015, 6.3% greater than in 2014. This increase occurred even as the number of natural gas-directed drilling rigs decreased. As of December 18, there were 168 natural gas-directed rigs in operation, only about half the number of rigs at the beginning of 2015, according to data from Baker Hughes Inc. However, the remaining rigs are among the most productive, and producers have continued to make gains in drilling efficiency.
What we see here is a market that works. Thanks to advanced hydraulic fracturing and modern horizontal drilling, the U.S. is producing increased volumes of natural gas. Abundance is enhancing natural gas’ affordability, increasing its role in the generation of electricity, benefiting consumers in the process. Interestingly, even with lower prices, producers are being more efficient and more, well, productive. At the same time, emissions from fracking operations are falling, helping America to lead the world in emissions reduction. Great model, eh?
There’s more good news. U.S. natural gas is poised to impact the global marketplace, too. The first exports of liquefied natural gas from U.S. shale fields are scheduled later this month, supported of course by the same expanded domestic supply that’s benefiting U.S. consumers. This is a big development – the United States emerging as a major natural gas supplier to the world, helping U.S. allies and, more generally, the world. Jude Clemente writes for Forbes:
After Qatar and Australia, the U.S. could easily become the world’s third-largest LNG supplier by 2020. We have a great advantage over other LNG exporters because we can reconfigure our vast LNG import structure to export. … While the export of U.S. LNG is sure to spark more gas production growth, high-paying jobs, tax incomes, and economic growth, in a world drastically deprived of energy (85% of the global population lives in undeveloped nations), exporting U.S. energy is really a moral obligation: over 650 million Sub-Saharan Africans have NO electricity, for instance.
Clemente also points to the emissions benefits of natural gas use in the wake of the Paris climate conference:
The U.S. stands in a very wonderful and unique position: we can help supply natural gas to the world, which legendary energy thinker Vaclav Smil calls “Fuel for the 21st Century.” It’s very telling that the industrialized nations seeking to cut GHG emissions most are continually turning to gas.
API President and CEO Jack Gerard calls it the “U.S. model,” economic growth, rising energy production and falling emissions occurring simultaneously. It turns up the heat on federal regulators to expedite approvals for proposed U.S. LNG export projects. Based on natural gas, it’s a model for the world.
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and four grandchildren.
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